Premiers told to take dose of GST

Treasurer
Wayne Swan
yesterday tried to persuade his state counterparts to sign on to the health funding proposal by highlighting that they will receive an extra $13 billion in GST revenue, as the economy rebounds and consumers loosen their purse strings.

GST revenue is now expected to rise to $196 billion over the four-year forward estimates to 2012-13, compared with the $186 billion projected in the mid-year economic and fiscal outlook published in November.

There is also expected to be a further $3 billion in GST revenue in 2013-14 when the May budget is published.

Under the Rudd government’s health plan, the gap between the projected growth in GST (estimated at 6 per cent a year) and hospital spending (10 per cent a year) will be financed by the federal government.

Last night, Prime Minister
Kevin Rudd
and the premiers were debating how one-third of the GST pool – or $90 billion over five years – could be dedicated to health spending.

Household expenditure rose a modest 2.8 per cent over the 12 months to the December quarter, a positive result Mr Swan said was helped by the government’s cash handouts to low and middle-income earners.

Peter Downes, a former Treasury forecaster, said yesterday GST revenue should grow in line with consumer spending as the economy recovers. “It’s not surprising that it’s gone up," he said.

A rebound in discretionary spending due to rising share and house prices, lower unemployment and a strong currency would underpin consumption, and hence, GST revenue in the period ahead, he said.

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“The discretionary part of consumption like motor vehicles and durables, they took a fair hit last year and now that the stock market is coming back, house prices have picked up, employment is recovering, that is all good for consumption growth.

“It’s certainly good for GST revenue," Mr Downes said.

However, the Australian National Retailers Association has warned the five interest rate rises by the Reserve Bank of Australia could threaten a sustained recovery in consumer spending.

Mr Swan said on Sunday the commonwealth revenue base, particularly the profit-based company and capital gains taxes would recover more slowly than GST revenue, which is less volatile.

Businesses and investors who recorded losses, wrote down asset values and sold investments at a loss, will be able to offset those losses against future profits.

Mr Downes said corporate tax revenue was very difficult to forecast, but recoveries after previous downturns suggested company tax receipts might be higher than the government had indicated.

“I’m not sure there’s going to be that many people taking tax losses and rolling them over," he said.

“Company profitability has been very good if you look at retail, wholesale, transport services, mining and agriculture."